The stages of a property sale most susceptible to money laundering

Hole in a fence

With the property sector under constant attack from criminals looking to launder their ill-gotten gains, it can feel like a never-ending battle for estate agents to keep up with their tactics.

When it comes to money laundering within the property sector, there are three general types of risk to consider:  

  • Customer risk: Focussed around the buyer or seller themselves
  • Transactional risk: Focused on the property and the finance of a transaction
  • Geographical risk: Whether the location of person* and/or source of funds originates from high-risk countries

However, our previous research found that almost half of property professionals still carry out their own AML checks which can be a tall order at the best of times, let alone in the middle of a property market boom.

So when do criminals attempt to launder money during a property transaction? 

Initial Preparation – Low to Medium Risk

The initial preparation stage can require some action, but the threat of money laundering can be fairly easy to detect. Many buyers will look to secure a mortgage in principle and this requires a raft of personal information such as name, address, date of birth, income, expenditure and existing credit agreements. 

Mortgage lenders should check source of funds and so any red flags around complex loans should come to the forefront at this point. Cash buyers should also raise an initial flag at this point, but just because these initial checks have been done, it doesn’t mean estate agents can rest easily. They are responsible for carrying out their own AML checks and must ensure these are done properly, regardless of how stringent the checks already made by mortgage lenders have been. 

Property search and making an offer – Medium to High Risk

It’s at this stage that estate agents, in particular, need to be at the top of their AML game. ID checks are essential when buyer’s offer has been accepted and this is when you must be considering any customer, transaction or geographical risks. 

Can you verify the buyer? Are they offering way over or under the asking price of the property? Are there any other mismatches between the buyer and property? Is this one of multiple successive transactions they’ve made recently? Are they purchasing within the UK from a nation with weak AML regimes? 

This is when your AML procedures will be tested and any customer, transaction or geographical red flags should be reported immediately. 

Working towards completion – Medium to High Risk

Just because an offer has been accepted, conveyancing solicitors should not assume a buyer is AML compliant and the threat remains at its highest when working towards completion. 

They too, should carry out their own due diligence to investigate proof of ID and the source of said funds. The red flags associated with customer, transaction and geographical risk are still relevant at this stage and so anything they think may have been missed by a mortgage lender or estate agent should still be reported. 

Exchange and completion

By the time a transaction completes, any buyer should have been subjected to multiple checks by mortgage lenders, estate agents and solicitors. They should be happy that the buyer is who they claim, their source of funds is proven and legitimate and they are able to pay both the seller and other costs associated such as stamp duty. 

Stopping money-laundering from the start

While the threat of money laundering is fairly low during the initial stages of the transaction process, being able to fully qualify a buyer in terms of both their identity and their financial suitability can set the tone for a fully compliant property sale.

It also helps those at the sharper end of the process to rest easier knowing these checks have been executed properly and the buyer they are dealing with is legitimate. 

Of course, this isn’t always the case and many stakeholders within the home buying process will execute their own AML checks to varying standards of success. This means that those further down the line must remain diligent to the threat of money laundering at all times, but particularly when an offer is being made and progressed to completion.

* The nationality of the individual is irrelevant its where they are located / living. So a British national living in Iran attempting to purchase a property in the UK would be consider a potential risk.